Cleanup's unintended cost

13 August 2010 By Wei Gu

Beijing has ordered banks to bring loans made to trust companies back onto their books. Closing the loophole will help reduce financial risks. But the move could also leave make it harder for banks to meet existing lending limits, restricting the supply of credit.

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China's Banking Regulatory Commission said on Aug 12. that banks have to move loans made to trust firms back on their balance sheets by the end of 2011. The CBRC said better regulation of banks and trust firms would help head off risks to the financial sector.

The regulator also said banks should set aside 150 percent of their usual loanloss provisions for those assets. Large banks and small banks should maintain capital adequacy ratios of 11.5 percent and 10 percent, respectively, after moving the loans back onto books.

Citic Bank said it on Aug. 12 it had 90 billion yuan trust products outstanding, with one to two years' maturity. Those products account for 7 percent of the banks' risk weighted assets.

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